MARKET WATCH: Energy prices recover in see-sawing markets

Energy prices recovered strongly July 12 with front-month futures contracts for West Texas Intermediate and North Sea Brent each posting 1% gains as both the Dow Jones Industrial Average and Standard & Poor’s 500 Index closed at new highs.

Although the political turmoil in Egypt has been relatively quiet since the start of religious observance of Ramadan, geopolitical concerns still outweigh the possible effect on the dollar and market speculation of the US Federal Reserve damping down its economic stimulus spending.

Meanwhile, the National Bureau of Statistics said July 15 China’s implied oil demand rose to 9.94 million b/d in June, up 5% for the month and 10.7% from a year ago. Although escalation of China’s demand growth “was amplified by a low base,” analysts with Barclays Capital Commodities Research said it is “on track to grow 5% in 2013 as we forecasted, and we expect imports to improve along with demand.”

However, they said, “We do not expect underlying demand to keep rising at double-digit levels in coming months. As China enters the slow summer months for manufacturing and as harvesting ends, diesel demand is likely to soften sequentially. Higher runs could quickly build inventories in this environment of softer demand. With China’s gross domestic product expected to grow 7.4% this year, oil consumption is going to feel the strain of struggling industrial activities.”

China’s increased demand in June was driven by a sharp increase in refinery runs, which climbed 10.1% from a year ago to 9.66 million b/d. “This surge reverses months of gradually slower growth, which fell to 1.1% year-to-year in May,” said Barclays Capital analysts. So far this year China’s oil demand is 4.9% higher than in the first half of 2012. “Crude imports had grown only 2% year-to-year and fell 250,000 b/d month-to-month to 5.41 million b/d, suggesting that China has drawn crude stocks in June,” analysts said.

In other news, the India Times website reported India has replaced the US as the largest market for Nigerian crude, due in part to diminished demand for that crude among US East Coast refineries.

Energy prices

The August contract for benchmark US light, sweet crudes regained $1.04 to $105.95/bbl July 12 on the New York Mercantile Exchange. The August contract took back $1.17 to $105.55/bbl. On the US spot market, WTI at Cushing, Okla., also was up $1.04 to $105.95/bbl.

Heating oil for August delivery recovered 3.44¢ to $3.03/gal on NYMEX. Reformulated stock for oxygenate blending for the same month jumped 9.61¢ to $3.12/gal.

The August natural gas contract rose 3.1¢ to $3.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued its decline, down 2.7¢ to $3.62/MMbtu.

In London, the August IPE contract for Brent was up $1.08 to $108.81/bbl. The new front-month August contract for gas oil gained $6.75 to $916.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes inched up 1¢ to $104.82/bbl. So far this year, OPEC’s basket price has averaged $104.95/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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